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Business continuity in times of distress: debt restructuring agreements and compositions with creditors in Italy

Alessandro Danovi (), Iacopo Donati (), Ilaria Forestieri (), Tommaso Orlando () and Andrea Zorzi ()
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Alessandro Danovi: University of Bergamo
Iacopo Donati: University of Florence
Ilaria Forestieri: University of Florence
Tommaso Orlando: Bank of Italy
Andrea Zorzi: University of Florence

No 574, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The Italian insolvency framework makes several restructuring tools available to firms and their creditors, so that distress does not necessarily lead to liquidation. This paper analyses two such instruments: debt restructuring agreements (DRAs) and compositions with creditors (CCs), both commonly used to reorganize distressed firms and preserve their continuity. These procedures typically involve large firms, particularly in the case of DRAs where judicial control over negotiations is milder. Firms using DRAs are in less critical economic conditions when they file for restructuring, but they do so after longer periods of distress. Despite their declared aim, the effectiveness of these instruments in terms of business continuity is limited: many firms that use them end up exiting the market, in particular in DRAs. Firms that survive display only partial recovery, which is relatively more intense in CCs. However, the apparently superior performance of CCs is overshadowed by the long duration of restructuring, which may prevent us from observing definitive outcomes.

Keywords: insolvency; firm restructuring; business continuity (search for similar items in EconPapers)
JEL-codes: G33 G34 K29 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-cfn and nep-law
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